Per-to-peer lenders and borrowrs could be forgiven for sending their children out in Lord Turner costumes tonight . The good lord, who presided as regulator over the Crisis of 2008, trashed peer-to-peer lenders in the spring, then shared some more kinder and more positive opinions at the Lendit conference.
Now he has changed his tune again and is warning that increasing complexity in peer-to-peer lending could make things very difficult for regulators. What are we to make of all this?
After Lord Turner's contyroversial remarks in March, the industry pushed back - several platform even invited him to inspect their processes - and critics pointed out his lordship had some 'skin in the game' himself, as a senior director of challenger bank OakNorth. Turner has been batting for a different team in the same contest.
But we only discovered this afternoon that he published a book last year called 'Between Debt and The Devil', in which he suggested that the banks were not responsible for the last financial crisis, and the problem was private debt.
(If any of our readers would like to draw a Venn diagram showing the relationship between private debt and the banks, please do. We will not be offering a prize for the best.)
So it puzzles us that this week, Lord Turner is saying (again) that peer-to-peer is a problem, and this time the problem is going to be the platforms, not the debtors. His ideas are expressed in an interview in this morning's P2P Finance News, which we'd encourage you to read.
This may surprise you, but we sympathise with Lord Turner. Complexity is a real problem in finance.
The good news is that the participants in the alternative finance industry know that it is, and they are actively working to make their businesses as transparent and easy to understand as possible. We published a piece at the weekend which mentions equity platforms discussing the benefits of standardising their products to make them easier to understand and compare, and only a few weeks ago the Peer-to-Peer Finance Association (P2PFA) said its members would welcome more regulation, 'to ensure that exemplary levels of confidence can be maintained'.
So, here is our considered advice:to anybody who might be concerned by the issues Lord Turner's remarks have raised:
- Yes - complexity is a real problem. Simplicity is far better.
- The peer-to-peer and crowdfunding sectors understand that, and they actively prefer working with a sympathetic regulator.
- Peer-to-peer lending is a worthwhile investment for intelligent grown-ups.
- Derivatives contracts, made out of tranches of peer-to-peer loans, are an entirely different asset class, which we recommend should be left to specialists.
- Lord Turner, as usual, is 'fighting the last war'. He is highlighting the mistakes made by 'bad actors' ten years ago, which the regulators of the day failed to spot and manage.
Penny for the Old Guy, anybody?